Importance of making a nomination

Introduction

This is an introductory guide to help you understand the importance of making a nomination in
your life insurance policy to safeguard the interest of your loved ones.

It gives you some basic information to help you understand the nomination process and its
benefits. A brief explanation on several technical terms used is also provided to help your reading
process.

Making a nomination

The purpose of having life insurance is to ensure that your loved ones are protected financially
should anything happen to you. It is then important that your loved ones can access the funds
quickly. If you do not make a nomination in your insurance policy, your insurance company is not
obligated to release the policy moneys until your loved ones obtain a Grant of Probate or Letter of
Administration or Distribution Order, which may take several years. However, if a nomination is
made, the policy moneys can be disbursed much faster without the need to obtain the Grant of
Probate or Letter of Administration or Distribution Order.

In addition, in the case of a non-Muslim policy owner, a trust will be created in favour of the
nominee under the following circumstances:

• if the nominee is the spouse or child of the policy owner, or

• if the nominee is the policy owner’s parent (provided that there is no living spouse or child
at the time of such nomination).

When such a trust is created, the policy is known as a trust policy. As a trust policy, the policy
moneys payable do not form part of the estate of the deceased policy owner and are not
subjected to the deceased policy owner’s debts. This ensures that your loved ones get the full
amount of the policy moneys payable. However, this is only applicable if the policy is taken in
good faith and with no intention to defraud creditors.

A trust policy does not apply in the case of a Muslim policy owner. The nominee of a Muslim
policy owner takes the policy moneys only as an executor and must distribute the moneys in
accordance with Islamic laws.

How do I make a nomination?

If you are 18 years old and above, you can nominate an individual or individuals to receive the
policy moneys in the event of your demise. Nomination can usually be done at the time of
application of the life insurance policy or any other time, when necessary.
You can nominate more than one nominee, and state the proportion to which each nominee
would be entitled. For example:

Name NRIC Share

Tan Mei Ling 601212-21-1010 50%
Lim Jet Li 850619-22-5000 20%
Lim King Sing 430915-23-6050 30%

If you do not specify the portions to be paid to each person, the policy moneys will be distributed
to the nominees in equal share.

Who can I nominate?

You are free to nominate whoever you want. However, not all nominees will receive the policy
moneys beneficially or for their own use.

In the case of a non-Muslim policy owner, depending on the relationship between the policy
owner and the nominee, a nominee can receive his or her share of the policy moneys either
beneficially or as a trustee or an executor.

Where the nominee is the spouse or child, a trust will be created in favour of the nominee who will
receive the policy moneys beneficially. If there is no living spouse or child at the time of
nomination and you nominate your parent, then a trust will be created in favour of your parent and
he or she will receive the policy moneys beneficially. In such a case, the policy is called a trust
policy.

[ Note: When a trust policy has been created, you cannot revoke a nomination under the policy,
vary or surrender the policy, or assign or pledge the policy as security, without the written consent
of the trustee].

However, where there is a living spouse or child at the time of nomination and you nominate your
spouse and parent or you nominate your child and parent, a trust will only be created in favour of
your spouse or child but not your parent in both these instances. Similarly, where there is a living
spouse or child at the time of nomination and only your parent is nominated, a trust will not be
created in favour of your parent.
Where the nominee is not the policy owner’s spouse or child or parent (if there is no living spouse
or child at the time of nomination), the nominee will receive the policy moneys only as an
executor and shall distribute it according to the will, or if there is no will, the applicable laws of
distribution. In such a case, the policy is called a non-trust policy. The policy moneys form part of
the deceased’s estate and are subjected to his debts.

For example, if you nominate your brother, he will receive the policy moneys as an executor. The
policy moneys will then form part of your estate and your brother would be bound to distribute the
policy moneys accordingly, including to your creditors, if any. If there is a surviving spouse, child,
or parent, and there is no will, then according to the Distribution Act 1958, the brother will not
inherit any part of the estate.

Note: As previously mentioned, in the case of a Muslim policy owner, the nominee, irrespective of
relationship, can only receive the policy moneys as an executor, and the policy moneys must be
distributed according to Islamic laws].

The role of trustees

Trustee(s) can also be appointed to receive the policy moneys in a trust policy. Upon the demise
of the policy owner, the trustee’s duties would be to receive the policy moneys and distribute
them to the nominees accordingly. The trustees must act in the best interest of the nominees at
all times.

The appointment of trustee(s) is especially important for children below 18 years of age because,
legally, minors are considered incompetent to enter into a contract and therefore not able to
receive the policy moneys directly. Where no trustee is appointed and a child is the nominee of
the policy, the surviving parent is the trustee. Where there is no surviving parent, the Public
Trustee shall be the trustee. Upon receiving the policy moneys from the insurance company by
the trustee, the insurance company shall be discharged of all liabilities in respect of the policy
moneys paid to the trustee(s).

In the case where a nominee is 18 years old and above, and no trustee has been appointed, the
nominee shall act as the trustee of the policy moneys.

Changing the nomination

You can make changes to a nomination by writing to your life insurance company. The latest
nomination will supersede all previous nominations. A nomination will also be considered revoked
upon the demise of a nominee, or all nominees (if there is more than one nominee), during the
lifetime of the policy owner. However, in the case of a trust policy, a nomination cannot be
revoked without the written consent of the trustee.

What happens when there is no nomination?

Where no nomination has been made, the insurance company shall pay the policy moneys to the
applicant who produces the Grant of Probate or Letters of Administration or Distribution Order.

However, the insurance company may, at its discretion, make payment to a claimant without
requiring the Grant of Probate or Letters of Administration or Distribution Order, under the
following circumstances:

if the claimants are the policy owner’s spouse, child or parent, the insurance company may pay to
the policy owner’s spouse, child or parent in that order of priority. If there is more than one person
in any of the above-mentioned categories, then all individuals in that category will be paid in equal
shares.

if there is no spouse, child or parent and the policy moneys payable do not exceed RM 100,000:

the insurance company, may pay the policy moneys to whom it is satisfied is entitled and likely to
be given the Grant of Probate or Letters of Administration or Distribution Order, or to a person
who the insurance company is satisfied is beneficially entitled to the estate of the deceased policy
owner.

if there is no spouse, child or parent and the policy moneys payable exceed RM100,000:

the insurance company may pay the first RM100,000 to a person as specified in the immediate
paragraph above. The balance of the policy moneys shall be paid to the same person upon
production of the Grant of Probate or Letters of Administration or Distribution Order.

However, upon 12 months after the first payment of RM100,000 and no claim has been made on
the balance of the policy moneys by any person who holds a Grant of Probate or Letters of
Administration or Distribution Order, the insurance company shall pay the balance to the person
who has received the first payment.

When no nomination has been made, the person who received the policy moneys is only
receiving it as an executor and must distribute it in accordance to the will of the deceased, or if
there is no will, the applicable laws of distribution.

Understanding the important terms used

• Beneficiary - a person who is entitled to receive for his own benefit (beneficially) the
policy moneys under an insurance policy, and not merely as an executor or trustee
holding the policy moneys for others.
• Distribution Order - an order made by the court for the division of the estate of a
deceased, who did not leave any will, according to the law.
• Executor - a person who has been appointed in a will to administer a deceased’s estate,
in accordance with the deceased’s will, and issued a grant of probate by the court to do
so. For purposes of the Insurance Act 1996, a reference to an “executor” is a reference to
a nominee of a non-trust policy who receives policy moneys not as a beneficiary but as
someone who must pass the policy moneys to the deceased policy owner’s estate for
distribution.
• Grant of Probate - a formal document issued by the court authorising the executor
named by a deceased person in his will to administer his estate in accordance to the
deceased’s will.
• Letters of Administration - a formal document issued by the court to a person to
administer the estate of a deceased who did not make a will.
• Nominee - a person who is named (nominated) in an insurance policy by the policy
owner to either receive and/or administer the policy moneys upon the demise of the
policy owner.
• Non-Trust Policy - an insurance policy whereby the policy moneys form part of the
estate of the deceased policy owner and are subjected to his debts.
• Policy Moneys - total sum of moneys, including any benefit whether of monetary value
or not, that is payable under an insurance policy.
• Public Trustee - a statutory body set up to help manage estates of deceased persons,
when required. In Malaysia, Amanah Raya Berhad is the public trustee. Amanah Raya
Berhad acts as a custodian trustee and may be appointed as trustee of any will or
settlement or trust, or perform any trust or duty of certain classes. It may also be granted
 probates of wills or letters of administration by a court. Upon application by a beneficiary,
Amanah Raya Berhad can also be appointed by a court to replace all or any existing
executors, administrators or trustees.
• Trust Policy - an insurance policy in which the nominee is the policy owner’s spouse or
child, or where there is no living spouse or child at the time of nomination, his parent.
Under such a policy, the policy moneys do not form part of the estate of the deceased
policy owner and is not subjected to his debts.
• Trustee - a person who is given the legal title to the property which he holds not for his
own benefit but on trust for the benefit or interest of another or others.